MKM: Time To Buy Health Care ETF Heavy In JNJ, ABT, MRK, BMY

By Murray Coleman

If you look at the rise of stocks from developing countries over the past month, it looks fairly impressive. Shares of the iShares MSCI Emerging Markets ETF (EEM), a broad monitor of such a vast group, entered Monday’s trading on a 13% run-up in October.

But if your investment horizon spans a relatively short horizon, you might want to take a second look. Analysts at MKM Partners recommended to its trading clients today that it’s time to sell EEM, or better, take short positions in the ETF. The fund closed down by 3.4% on the day.

“EEM gapped up on its chart late last week,” they wrote, noting the move technically appears to be a last gasp stab. MKM’s chief technical analyst Katie Stockton described the past month’s up and downs as leaving EEM looking rather “exhausted.”

Also, the ETF faces “significant” technical headwinds near its 50-day moving average, she noted. That’s a key line-in-the-sand often pointed to as the barrier separating whether an ETF has short-term price momentum to move forward or not.

At the same time, EEM isn’t likely to find its first base of initial support until it falls about 7% below current levels, according to Stockton.

Stockton noted that the health care sector appears relatively well-positioned to weather increased volatility in the market in the event of another downleg. The ETF’s relative strength — which measures how its shares have moved compared to the blue chip SPY — has been exhibiting increased momentum, she added.

XLV, which finished down 1.7% in the regular session, is trading higher by 0.7% in after-hours.

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As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.